Tuesday, October 7, 2008

The last few days have been hectic at work, but a good hectic ... for me at least. While everyone is freaking out about the state of the economy, I feel some (sick?) pleasure from the tanking. Wait though, before you disregard me as loco, understand that it's only because I feel like we're watching history being made.

Don't get me wrong, I think it's awful what's happened and we will all shoulder the burden as the economy gains its footing in the next few years (yes, I said years), but it's truly history in the making ... something our kids are going to ask us about as they begin weaving their way through the maze of credit cards, car loans and college tuition. It's kind of like if you're an aspiring fashion journalist and you get a big break covering fashion week in Paris, sitting front and center next to Anna Wintour at the Oscar de la Renta show. Okay ... maybe it's not that cool, but I guess in some twisted way the markets plunging makes me feel like there is an urgent importance to my job. The last time stocks headed south to this magnitude was when I was a wee brunette on a budget, striding into my kindergarten class carrying a tin Strawberry Shortcake lunchbox and wearing the season's hottest fashion trend: Punky Brewster sneakers.

So even though I reported the market's happenings last week, that was before Friday's bailout plan was passed, which illustrated a whole other set of problems at hand. I think it's important for everyone to have a solid grasp on what's going on with the U.S. economy and international stock markets, so without further ado, here's all you need to know about the state of the economy, in one minute or less (courtesy of an amalgamation of news sites I read):

Stocks declined "may-juhly" (as Posh would say) on Monday, starting out the week in much the same fashion as things ended last week. The U.S. walked right into a global storm, with European stocks sinking some 5% into the open, on the heels of steep declines throughout Asia." Sounded like someone had a case of the Mondays ...

"During the start of trading on Monday, Japan was down 4.9%, Hong Kong off nearly 5%, China down 5.1%, Taiwan down 4.1%, Australia off 3.3%, Singapore down 5.6%, South Korea off 4.2% and India down 5.7%."

"Stock market trading in Russia was halted three times as their stocks tumbled over 18% during the session. Trading halts were also executed in Brazil, as the world’s sixth-largest country saw stocks sink 15%. In Peru, trading was also stopped as the market slumped 7%. It was the worst one-day carnage in 10 years for Latin American stocks."

"Many Latin American economies are heavily dependent on commodity exports (such as oil) and it was a brutal day for oil, as fears of a global recession dealt a powerful blow." On Monday crude oil, for example, was down 6% to eight-month lows. Why? Because much of the price of oil is speculation, and not what it's actually worth. When investors get nervous about the state of the economy, they pull their money out of the market (which includes oil) to shield it elsewhere. It plays out much like a domino effect.

"The Federal Reserve knew it was going to be a difficult day; right off the bat it pumped billions into the market. At the same time, central banks around the world were also busy trying to flood the market with cash to ease clogged credit lines."

Goldman Sachs said Friday that “The recession we have been forecasting now looks likely to be deeper and longer, taking the unemployment rate to 8% by late 2009 and pushing the Fed to cut interest rates to 1% or lower.”

Goldman Sachs also noted that real consumer spending is on course to post its first quarterly decline since 1991, that manufacturing activity is in a slump and that a rapid contraction in the labor market is underway — all at the same time that financial market distress has intensified.

Today's headline news is all about commercial paper (such as certificates of deposit). "The Federal Reserve, invoking Depression-era emergency powers, will buy commercial paper, a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls."

"In more normal times, about $100 billion of these short-term IOUs were outstanding at any given time, but this market has virtually dried up as investors have become too jittery to buy paper for longer than overnight or a couple days."

"That has made it increasingly difficult and expensive for companies to raise money to fund their operations and has left them vulnerable. Commercial paper is a way for companies to borrow money for short periods, typically ranging from overnight to less than a week."

The Fed’s announcement on commercial paper is noteworthy because it could help unclog credit lines. (Clogged credit lines is the overwhelming reason why we're in this mess.) The Fed said that the notion under the plan is for the government to provide a "backstop" that would give companies a new place to get cash.

This action makes the Fed (now along with commercial banks and investment firms) an imperative source of credit for nonfinancial businesses.

The commercial paper plan could take some of the edge off the calls for an emergency rate cut.

Now you're all caught up in the financial news arena, and it only took 30 seconds, right?

2 comments:

I know this isn't your job on this blog, but maybe you have some insight into what us normal folks can do to minimize damage to the market and to our personal finances? Is there anything we "little people" can or *should* do at a time like this?

Thanks for the rundown.

And the boots in the below post are adorable. ;) Too bad I'm short and it's hard to find boots that aren't too long. I want some for my skinny jeans.

Writer, wife, and mom to two baby girls. As of 2013 I'm no longer brunette (blond ambition!) nor on a budget. I love shoes, wine, Palm Springs, and Barry Gibb. As always, I'm still looking for my lost shaker of salt.
Email me at brunetteonabudget [at] gmail [dot] com.